Recognizing the urgent need for energy upgrades in public infrastructure, the Hellenic Load and Consignments Fund (HLCF) launched a comprehensive programme in 2019 to help public authorities access funding for street lighting modernization. The program’s core objective is to enable public authorities to secure low-interest, ten-year loans for upgrading their lighting systems. What sets this initiative apart is its performance-based repayment model: public authorities repay the loan using the energy savings generated by the project itself. This ensures that upgrades are not only environmentally responsible but also financially self-sustaining.
Key Steps in the Program
The HLCF program is structured around a clear, streamlined process:
- Application and Approval: Public authorities submit a detailed application to the HLCF, requesting a ten-year, low-interest loan. The application must convincingly demonstrate that the projected energy savings from the lighting upgrade will be sufficient to cover both the principal and interest of the loan. This requirement ensures that only projects with real, measurable benefits move forward.
- Quality Standards: A cornerstone of the program is its insistence on quality. Wherever feasible, upgraded lighting systems must comply with the EN 13201 standard, which governs street lighting quality and performance across Europe. If full compliance is not possible due to existing infrastructure constraints, the program mandates that lighting quality and levels must not be reduced, safeguarding public safety and comfort.
- Simplified Procurement: To lower administrative barriers, the program encourages public authorities to tender projects as public procurements with supply contracts. This type of public procurement concerns the purchasing of goods or products. Compared to engineering or implementation works of works contracts, this type of public procurement only requires a technical report and technical specifications of the goods or products to be purchased, thereby eliminating the need for detailed engineering studies that are required for public procurements simplifying the process.
Innovative Features of the HLCF Program
The HLCF programme distinguishes itself through several innovative mechanisms that align the interests of all stakeholders – public authorities, contractors, and citizens – and ensure its long-term success.
1. Performance-Based Financing and Quality Assurance
At the heart of the programme is its performance-based repayment model. Rather than saddling public authorities with additional financial burdens, the loan is structured so that repayments are made directly from the savings achieved from energy costs. This approach guarantees that the project is financially sustainable, with no hidden costs or unexpected liabilities for the public authority. Furthermore, as noted above by mandating compliance with the EN 13201 standard, the programme ensures that upgrades deliver not only energy savings but also tangible improvements in lighting quality and public safety.
2. Lifecycle Cost Evaluation
Unlike traditional procurement models that focus solely on the lowest upfront price, the HLCF programme awards contracts based on the lowest lifecycle cost. This incentivizes contractors to propose solutions that are efficient, durable, and cost-effective over the long term. As a result, public authorities benefit from reduced maintenance costs and longer-lasting infrastructure.
3. Innovative Payment and Guarantee Mechanism
A particularly novel aspect of the HLCF programme is its use of an ESCROW account as a performance guarantee. Upon project completion, contractors receive up to 70% of their fee directly. The remaining 30% is deposited into an ESCROW account, which serves as a guarantee of ongoing performance. Each year, for the ten-year duration of the loan, 10% of the amount that is deposited in the ESCROW account is released to the contractor—provided that the contracting authority certifies compliance with contract terms (such as timely repairs and replacements) and an independent body (i.e. the Center for Renewable Energy Sources and Saving, CRES) verifies that the projected annual energy savings have been achieved. This mechanism ensures that contractors remain invested in the project’s success throughout the duration of the 10-year loan and, therefore until the HLCF’s loan and interest is paid back by the public authority.
4. Leveraging Private Capital
By withholding a significant portion of the contractor’s payment in an ESCROW account (at least 30%), the program effectively leverages private capital as the Contractors have to complete the works with only 70% of the amount awarded to them by the Contract being readily available. Contractors are therefore motivated to deliver high-quality, reliable solutions, as their full compensation depends on long-term performance. This approach not only reduces financial risk for the public authorities but also fosters a culture of accountability and excellence among contractors.
5. Reduced Reliance on Traditional Guarantees
Traditionally, public projects in Greece required a bank guarantee for performance assurance—a process that could be both costly and cumbersome. The HLCF programme’s ESCROW account mechanism offers a more flexible, lower-cost alternative, reducing barriers for both contractors and public authorities and streamlining the path to project completion.
Legislative Changes and Their Effects
In 2021, Article 72 of Law 4782/2021 amended Law 4412/2016, bringing Greek law into alignment with European directives aiming to increase transparency in public procurement. However, the introduction of a 5% performance guarantee for public contracts meant that only 5% of the amount awarded to the Contractor could be deposited in an ESCROW account, this change drastically reduces the Contractor’s motivation to deliver high-quality, reliable solutions, as they now only risk losing 5% of their full compensation if they do not comply with the contract requirements related to operability and energy performance.
Adapting to New Realities
To address these challenges, the HLCF program could evolve by adopting a public procurement process with a mixed supply and services contract, thereby bypassing the 5% guarantee restriction. Under this model, up to 70% of the payment to the Contract would be allocated for the supply of equipment, while the remaining 30% would be classified as a service (covering maintenance, replacements, and energy performance guarantees) paid over ten years. This structure would restore the alignment of incentives and risk-sharing between contractors and public authorities.
The main barrier to implementing mixed supply and services contracts in the public sector is that public authorities often lack familiarity with this type of process, this makes them hesitant to use mixed contracts, preferring to stick with more traditional, single-category contracts.
Another significant barrier and market constraint is contractors prefer to receive the full payment upfront and to not be paid back over a duration of years. In the ESCROW account mechanism, even though the Contractor cannot withdraw the full amount on the completion of the works, they have the assurance that the full amount has been deposited in their accounts (i.e. 30% in an ESCROW account) and, therefore, their financial risk is lower.
The Role of Accelerators
The LEVERAGE Accelerator will be able to connect public authorities with credible ESCOs and financiers, ensuring that projects are matched with the right partners and that private capital is mobilized to cover the required co-financing, leveraging public grants for maximum impact will play a pivotal role in attracting potential contractors willing to accept a higher proportion of service-based payments to submit bids to such mixed supply and services contracts public procurement tenders. By reducing risk for public authorities and ensuring better, guaranteed project outcomes, the LEVERAGE Accelerator will help sustain the momentum of the HLCF program and drive further innovation in public sector financing.